JD enlists Tencent as it preps to take on Amazon in the US

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A logo of JD.com is seen on a helmet of a delivery man in Beijing, China June 16, 2014. Picture taken June 16, 2014. REUTERS/Jason Lee

JD.com Inc is preparing to make its US debut with a beachhead in Los Angeles, seeking to best arch-rival Alibaba and challenge Amazon.com Inc on its home turf.

The US$68bil (RM263.51bil) company, which said in December it’ll start online sales in the US by the second half of 2018, is now seeking funds to bankroll a logistics build-up to support an international expansion. JD is in final-stage discussions to sell 15% of its logistics arm to Tencent Holdings Ltd and other investors in an early fundraising round. Tencent will get about a third of the shares on offer and the deal will be completed by the middle of next month, billionaire founder Richard Liu said in an interview.

That’s a precursor to a logistics initial public offering in China or Hong Kong in about three years, Liu said, giving his most detailed outline of JD’s global push to date. The company founder wants to leapfrog Alibaba Group Holding Ltd, which like JD rode an unprecedented Chinese consumer spending boom but remains largely home-bound.

“JD’s rule is that once we decide to do something we never limit the money,” Liu said in Davos, Switzerland, where he was attending the World Economic Forum. The company wants half of its revenue from overseas within a decade and “we will continue to invest until we achieve our goal,” he said.

“This year, Vietnam, India, Philippines, Malaysia – every South-East Asian country – we will come by the end of this year,” Liu said. “Our future is we will invest in US and build a warehouse fulfillment center in US so you can get same-day delivery.”

JD has said previously it wants to start online sales in Europe and the US by the second half of 2018. Liu’s strategy is simple: sell quality Chinese goods at lower prices than his competitors. He wants half of JD’s revenue to come from abroad in 10 years, hopefully evenly distributed between South-East Asia, the US and Europe.

New Street Research analyst Kirk Boodry said JD getting half of its revenue from overseas would be a surprising achievement, and questioned its ability to win market share in countries where rivals were firmly entrenched.

But the company is lining up powerful backers to realise its vision. JD is Wal-Mart’s main partner in China, and it’s teamed up with Tencent in a number of deals, including last month’s US$863mil (RM3.34bil) investment into VIPShop Holdings Ltd. Tencent declined to comment on the logistics stake.

A “secret team” spent two years brainstorming with Chinese brands such as Xiaomi Corp on how to take the platform global, Liu said last year. Its push into the developed world however will be one of JD’s riskiest ventures to date. The online retailer’s expansion into South-East Asia, starting with operations in Indonesia and Thailand, faced relatively little competition. That won’t be the case for Europe or the US, where Amazon is active.

“We feel a little bit more optimistic about the prospects for a company that can leverage what they have in China overseas, and with JD we just don’t see them having anything in particular that stands out,” Boodry said. “But the idea of JD logistics setting up a facility and presence in the West Coast makes sense, when you think about the potential for cross-border e-commerce and import and exports from China.”